The New Art of Wealth Management

With Markets in Turmoil, Holding Your Client’s Hand Has Become Part of the Process

Imagine getting your quarterly investment statement and seeing the value of your portfolio down sharply. Even if you worked with a financial planner and made smart decisions for the long term, that loss hurts. Even when investment advisors know they did the right thing, they, too, feel the sting. It’s human.

This explains why David Evensky often feels like a therapist these days. Evensky, the chief marketing officer at Evensky & Katz/Foldes, works in private wealth management, which helps clients plan their financial future and manage their stocks, bonds, and other assets. With markets soft, he’s now spending part of his time calming nerves. “We’re more like psychologists than people know,” he says. “It’s really about behavioral finance.”

Evensky is not alone. Coral Gables shines as a hub for private wealth management. Firms in and around the city manage tens of billions in assets for diverse clients, including longtime Gables residents, newcomers from New York, and visitors from Latin America, to name a few. All are anxious.

The apprehension contrasts with the ebullience of recent years. For the past decade, stocks have been rising, sometimes up 20 percent yearly. Both investors and wealth managers gained. That’s because the advisors typically earn a fee based on the value of their clients’ portfolio, often around one percent.

But this year, some stock indexes fell 20 percent and have yet to fully recover. Inflation is back too, trimming buying power.

Evensky says he often starts conversations at work by acknowledging that pain. “Everyone has these emotions, even if you have great financial planning skills. It’s okay to be stressed and to feel angst,” he tells worried clients and burdened colleagues. Then he steps back to look at the long-term. He re- minds folks that the stock market has gone up decade after decade. He presents charts showing market gains since the 1920s, despite temporary setbacks. And he gives reassurances that their well-crafted financial plans have already factored in market slumps. “Working with a financial manager can be soothing,” says Evensky.

Communication and even “over-communication” are vital to reduce the worry, says Michael A. Cabanas, regional managing director at Fiduciary Trust Company International. His team now contacts clients more frequently – sometimes monthly, instead of quarterly. And they’re sending out newsletters more often.

“Markets are volatile now, and we’re emotional beings. Last December, we had thoughts of early retirement, and then came the market correction,” says Cabanas. “We do feel like therapists.”

Wealth Managers as Financial Doctors?

Jay Pelham, president of Kaufman Rossin Wealth, understands that finance involves emotions and expectations, with many ideas formed in childhood. That’s why, last December, he gave a book to clients as a holiday gift: “The Psychology of Money,” written by journalist Morgan Housel.

Pelham sees himself as a “financial doctor,” with holistic practices, including therapy. When someone comes in with a problem, perhaps a divorce or underperforming stocks, his firm starts with the equivalent of “blood work” – exams to look at the bigger financial picture. Kaufman Rossin even gives prospective clients a psychometric test com- prising 25 questions to assess their tolerance for risk.

As a “doctor,” Pelham says he increasingly considers the issue of aging, now that people are living longer. He recommends not only the usual assets (cash reserves, stocks, bonds, properties, and life insurance), but also suggests clients buy long-term care insurance to cover at least part of their expenses for healthcare. He also helps business owners with succession plans should a partner fall ill or die.

“What really derails financial plans is not short-term market volatility,” says Pelham, insisting on a comprehensive, long- term approach. “But as with all doctors, sometimes people listen, and sometimes they don’t.”

Small Moves to Help You Sleep Better

For some investors, the anxiety from the market slump gets so deep they consider selling off lots of stock. Wealth managers advise against major changes to long-term financial plans. If a client sells off stock and the market rebounds suddenly, they may miss the big bounce up. It’s tough – if not impossible – to precisely time the ebbs and flows in financial markets, advisors say.

Yet planners do suggest smaller adjustments to portfolios, if only to help clients sleep better at night. Some recommend keeping a bit more assets in cash because of rising expenses. Some advise buying more shares in top companies with solid prospects, like Apple or Amazon, to pick up bargains at today’s lower prices. And some suggest shifting more into bonds, which now offer better returns.

“There’s a silver lining to inflation and higher interest rates,” says Joe Nader, head of Calamos Wealth Management. “Investors have an opportunity to buy fixed-income investments at interest rates they haven’t seen in years, which can have a really meaningful effect on cash flow.”

Many firms also practice “tax-loss harvesting.”That’s selling off some money-losing stocks, taking a loss for tax purposes, and applying that loss against future gains on other stocks to trim overall tax outlays.

“By taking these actions in the down market, it makes you feel better. You’re not just sitting and watching,” says Evensky. “Your financial health is tied into your physical health, your wellbeing, and your mental health.”

Why Wealth Management?

If talk about financial therapy sounds off- beat, that may be because wealth management itself is a relatively new field. Many people are familiar with brokers, who sell a stock, mutual fund, or some other product and make a commission on the sale. Wealth management is a different model.

Critics say the broker model encourages advisors to sell and sell, even if the client doesn’t need anything new. Instead, wealth management firms – or technically, Registered Investment Advisors – grow with their clients. They help clients craft financial plans, manage client assets under those guidelines, and collect a fee based on the value of a client’s portfolio. The more a client’s assets rise, the more the firm gains.

Coral Gables is so central to wealth management that it was a local who literally wrote the book on it in 1997: Harold Evensky. His son David is now a principal at the firm, which has expanded as Evensky & Katz/Foldes, with additional offices in Texas and Washington state.

In the Gables area, many wealth firms are independents like Evensky’s, but banks and other big financial companies are also active. Both Pittsburgh-based banking giant PNC and Miami’s City National Bank of Florida, for instance, operate fast-growing wealth units in the city.

The companies see opportunity in the continuing influx of executives (and their assets) leaving higher-tax states like New York and California. And they’re attracted to the wealth that affluent Latin Americans keep bringing into South Florida. Indeed, so much wealth is pouring into South Florida right now that, despite declines in client stock values, many firms are reporting an increase in assets under management. “As financial planners, we get a lot of new clients when markets are down,” says Evensky. “When everything is going great, it’s human behavior – people may not pay a lot of attention to planning.”

Differences Among the Firms

Yet no two wealth firms are the same. They vary in size, services, and sometimes, investment approach.

Boutique firm Coral Gables Trust, for example, serves clients with asset portfolios smaller than many rivals accept, sometimes $1 million or less. It also handles trusts – separate accounts that hold assets to ease transfer to heirs – offering a service many don’t, says CEO Jim Davidson. The firm has four offices in South Florida, managing some $2 billion in assets.

In contrast, Calamos Wealth Management is part of Calamos Investments of the Chicago area. Founder and self-made billionaire John P. Calamos is known for his “risk-aware approach to investing,” using corporate bonds that can be converted to stocks, for example. The group runs its wealth division from Coral Gables, managing $1.6 billion in assets, roughly half the U.S. total, says division head Nader.

Regardless of services offered or approach taken, however, all firms are dealing with client misgivings. “At the beginning of the year, we had some clients who were comparing this to the financial crisis of 2008-09,” says Davidson of Coral Gables Trust. “But we explained, ‘This is nothing like that. That was a global meltdown. This will pass sooner.’”

Wealth management is also evolving. Technology plays a greater role. Communications are more digital, including online reports, says Anthony Poppe of Firestone Capital Management, a single-office firm in Coral Gables with $630 million in assets under management.

“Our time spent on Zoom has gone up exponentially,” says Poppe, even with older clients. And younger clients are now curious about investing in blockchain, cryptocurrencies, and other digital assets, he adds.

Yet challenges abound. Like many industries, it’s hard for wealth firms to find talent nowadays. “Hiring is what I spend the most time on,” says Davidson. He faces rising competition for employees from investment finance companies moving to South Florida from the New York, Chicago, and San Francisco areas.

Also problematic: finding the right mix of in-office and at-home work to keep employees happy while still building strong company bonds. “We’re all trying to figure out this new hybrid-work situation,” says Fiduciary Trust’s Cabanas. “To ask people who haven’t commuted to the office in two years to get in their cars and drive 30 to 40 minutes every day and miss out on all that productivity, it’s not easy… But not having face-to-face time really can hurt the culture.”

Fiduciary now has all its Gables staff come in on Tuesdays and Wednesdays. Management works on team building during those days, says Cabanas, “and we have a chance to do life together: bump into each other, talk about the weekend, and learn about a client or market situation.”

If talking about the stock market becomes disconcerting, advisors suggest going back to basics. “Be goal-focused and planning-driven, and that will really help relieve stress,” says Evenksy.